EMC 2009 Annual Report Download - page 57

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year's presentation.
B. Adoption of New Authoritative Guidance and Revised Financial Statements
Effective January 1, 2009, we adopted new authoritative guidance relating to the accounting for convertible debt instruments. The guidance changed the
accounting treatment for certain convertible securities including our convertible debt. Under the guidance, issuers are required to allocate the bond proceeds
into a debt portion and a conversion option. The allocation of the bond portion is based upon the fair value of the debt without the equity conversion option.
The residual value is allocated to the conversion option which is accounted for as additional paid-in capital. As a result of this change, the bonds are recorded
at a discount which is amortized over the instrument's expected life using the effective interest method, resulting in additional non-cash interest expense.
We revised prior period financial statements by reclassifying $669.1 million of our Notes to additional paid-in capital, offset by a deferred tax liability
of $250.9 million as of the date of the issuance of the Notes. We also increased interest expense by $102.6 million and $96.9 million and decreased the tax
provision by $32.1 million and $30.2 million in 2008 and 2007, respectively. The revision reduced net income attributable to EMC Corporation by $70.5
million and $66.7 million in 2008 and 2007, respectively, and reduced basic and diluted net income attributable to EMC Corporation common shareholders by
$.04 and $.03 in 2008 and $.03 and $.03 in 2007, respectively. Retained earnings as of January 1, 2007 were reduced by $7.5 million. See Note F.
Effective January 1, 2009, we adopted new authoritative guidance for non-controlling interests in Consolidated Financial Statements. The guidance
requires that (a) the ownership interest in subsidiaries be clearly identified, labeled and presented in the consolidated statement of financial position within
equity, but separate from the parent's equity, (b) the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly
identified and presented on the face of the consolidated income statement, and (c) changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for consistently within equity. A parent's ownership interest in a subsidiary changes if the parent
purchases additional ownership interest in its subsidiary, the parent sells some of its ownership interest or the subsidiary issues additional ownership interests.
Upon adoption of the guidance, previously reported financial statements were revised and we reclassified the previously reported Minority interest in VMware
to a component of shareholders' equity as non-controlling interest in VMware, Inc. Previously reported Minority interest was renamed Net income attributable
to the non-controlling interest in VMware, Inc. See Note C.
C. Non-controlling Interest in VMware, Inc.
In the third quarter of 2007, VMware completed an initial public offering ("IPO") of its Class A common stock. Prior to the IPO, EMC amended
VMware's certificate of incorporation to authorize shares of Class A and Class B common stock. After a conversion of existing common stock into Class A
and Class B common stock, EMC held 32.5 million shares of Class A common stock and 300.0 million shares of Class B common stock. The ownership
rights of Class A and Class B common stock are the same, except with respect to voting, conversion, certain actions that require the consent of holders of
Class B common stock and other protective provisions. Each share of Class B common stock has ten votes, while each share of Class A common stock has
one vote for all matters to be voted on by stockholders. In the IPO, VMware sold 37.95 million shares of its Class A common stock at $29.00 per share,
resulting in net proceeds of approximately $1,035.2 million. The gain of $551.1 million, net of taxes, of $330.7 million from this transaction was recorded as
an increase to additional paid-in capital which reflects the amount of EMC's share of VMware's net assets (after non-controlling interest) in excess of EMC's
carrying value prior to the IPO.
In October 2008, we purchased 500,000 shares of VMware's Class A common stock from Intel Capital Corporation for $13.3 million.
The non-controlling interests' share of equity in VMware is reflected as Non-controlling interest in VMware, Inc. in the accompanying consolidated
balance sheets and was $510.6 million and $327.5 million as of December 31, 2009 and 2008, respectively. At December 31, 2009, EMC held approximately
98% of the combined voting power of VMware's outstanding common stock and approximately 81% of the economic interest in VMware.
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